Wall Street ends turbulent week sharply lower

Photo by Richard Drew / Associated PressA specialist works at his post on the floor of the New York Stock Exchange Friday. The Big Apple Circus, that rang the Exchange opening bell, handed out clown noses on the trading floor.

By JOE BEL BRUNO
and SARA LEPRO
Associated Press

NEW YORK - Wall Street has ended a turbulent week with another astonishing show of volatility Friday, with stocks plunging, recovering and then plunging again as investors absorbed another wave of downbeat economic news.

Hedge fund selling in advance of a Saturday deadline contributed to the market's gyrations, which set back the Dow Jones industrials almost 340 points.

Some retrenchment was to be expected after Thursday's big rally, in which the Dow rallied more than 550 points after falling near its lows for the year. But there was plenty of discouraging news for investors to focus on, including comments from Federal Reserve Chairman Ben Bernanke that the markets remain under "severe strain" and a sobering report on October retail sales.

Analysts believe the market is still searching for a bottom after last month's huge losses, and that the pattern of volatility will continue for some time - selling, even on technical reasons like looming deadlines for cashing out hedge fund holdings, is still coming against a backdrop of an extremely weak economy.

"Clearly, the trading crowd like hedge funds can take this market in any direction they want to. Anybody looking to build a position is just not confident," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

The session saw another stream of bad news. Bernanke said during a speech in Frankfurt, Germany, that he would work closely with other central banks to try to alleviate the global financial crisis and left open the door to a fresh interest rate cut. The Fed is scheduled to meet Dec. 16 at its last regularly scheduled meeting this year.

While Wall Street would like to see another rate cut, many investors aren't sure, given the litany of bad economic and corporate news, of how effective a rate reduction would be in the near term. Many investors are still trying to assimilate to the idea that the economy's downturn would be protracted, lasting well into next year and perhaps longer.

"The economic news continues to be very negative," said Ben Halliburton, chief investment officer of Tradition Capital Management. "The realization that '09 is going to be a very bad year for economic activity is starting to dawn on people and they are starting to digest how bad it's going to be."

The Commerce Department reported that retail sales plunged by the largest amount on record in October as consumers cut back on spending in the wake of the financial crisis. Retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.

The market got more disappointing consumer news from retailers Abercrombie & Fitch Co. and JCPenney Co. Both warned that profits will come in below Wall Street's already lowered projections as retailers head into a holiday shopping season that could be among the slowest on record.

The great fear on Wall Street is that Americans' reluctance to spend will extend what is already a serious economic downturn. A barrage of negative consumer news sent stocks tumbling earlier in the week.

But the market drew some comfort in the afternoon from comments from Treasury Secretary Henry Paulson, who told CNBC that capital injections in the banking sector will help stimulate lending. He also defended the decision to not buy toxic assets from banks, saying that it would not work as quickly; the move helped send stocks falling earlier this week.

There was disquieting news from the tech sector that weighed on the Nasdaq composite index. Sun Microsystems Inc. said it will cut up to 6,000 workers, or about 18 percent of global staff, as part of a massive restructuring plan. And handset maker Nokia Corp. warned the global economic slowdown will weigh on sales next year.

According to preliminary calculations, the Dow fell 337.93, or 3.82 percent, to 8,497.31 at its lows of the day. The Dow fell more than 300 in early trading, recovered to a slim advance and then turned sharply lower at the end of the day as hedge funds cashed out. Fund investors had a Nov. 15 deadline for withdrawing their money.

The Standard & Poor's 500 index fell 38.00, or 4.17 percent, to 873.29, and the Nasdaq stumbled 79.85, or 5.00 percent, to 1,516.85.